“Blue Sky Laws” refer to the securities rules and regulations enacted by the various States in the United States. Each State has its own set of rules and regulations, which are in addition to the federal securities laws.
The origin of the term is a bit unclear, but the first use of the term that we are aware of is in an opinion of Justice McKenna of the United States Supreme Court, in 1917. Justice McKenna wrote the Court’s opinion in Hall v. Geiger-Jones Co., 242 U.S. 539 (1917), which was three cases, all dealing with the constitutionality of state securities regulations. Justice McKenna wrote:
“The name that is given to the law indicates the evil at which it is aimed, that is, to use the language of a cited case, “speculative schemes which have no more basis than so many feet of ‘blue sky’”; or, as stated by counsel in another case, “to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other like fraudulent exploitations.” Even if the descriptions be regarded as rhetorical, the existence of evil is indicated, and a belief of its detriment; and we shall not pause to do more than state that the prevention of deception is within the competency of government and that the appreciation of the consequences of it is not open for our review.”
Unfortunately, Justice McKenna never gave a reference to the “cited case” that he referred to, and the Hall cases have become known as The Blue Sky Cases, and Justice McKenna as the author of the phrase.
While these laws vary from state to state, the laws require registration of securities offerings, and registration of brokers and brokerage firms. Each state has a regulatory agency which administers the law, typically known as the state Securities Commissioner.